Expanding schools from a legal perspective

The risks involved with signing up to construction contracts, and the ongoing complexities arising from academisation plans, require a legal perspective. Andrea Squires of law firm Winckworth Sherwood addresses what schools should consider when discussing the prospect of expanding.

The school estate is always in a state of flux. Demographic changes influence not only the size of schools but also their location as schools thrive when they are considered to be at the heart of their community. The changes brought by the academies programme have had a fundamental impact on how education is delivered.

The role of local authorities is changing dramatically, increasing pressure on school based teams, and the free school programme (an off shoot of the academies programme) has introduced competition between schools which focuses attention not just on academic performance but on the image a school wants to project. When all this is factored into a growing population, threats to public funding and an increasing shortage of available land for development, the challenges for those with the responsibility to plan, design and deliver school places are significant and there has never been a greater need for innovative solutions.

New Schools
There are two ways of creating new schools: either by providers applying to the Department for Education (DfE) under the free school programme (which has become the government’s main tool for tackling the school place shortage), or by a local authority inviting bids from providers as part of a ‘new provision’. The latter is a statutory process. The key provisions are contained in the Education and Inspections Act 2006 (as amended by the Education Act 2011). 

Any new provision which a local authority is seeking to put in place is subject to what is called ‘the free school presumption’ and therefore whilst a local authority will put in place a process for a new school to open, it will not open as a maintained school but as an academy (to be known as a free school), independent therefore of local authority control.

There are conditions which local authorities must meet when they are putting forward a proposal for a new school, most importantly they must demonstrate they have a site and funding available (for any capital works) and that there is a demand for the new school places. It is worth comparing the difference here with the free school programme, which is operated by the Education Funding Agency (EFA) - the successor to Partnerships for Schools which many will remember from the days of Building Schools for the Future.

Firstly, a promoter of a free school need not identify any site for the location of the school, merely the need for places. Many successful free school bids have ultimately foundered for lack of a site for the school. Secondly, whilst in more recent times there is more emphasis on the need for places, in fact the genesis of the idea behind the free school programme was to allow those who could demonstrate they could run schools successfully (be they parent groups, foundations and sponsors or indeed other schools) to be allowed to do so in an attempt to use competition to drive up standards.

The funding differences are even more stark: if a new school is opening under the free school programme the capital funding comes from the generous free school budget but if a local authority is opening a new school, the funding must come from either general local authority funds (the calls upon which of course are many), or more likely from ‘targeted basic need funding’, which is funding provided by the DfE to address the shortage of school places.

The disconnect between the two presents challenges. Local authorities will tend to have the project management resources to undertake these kinds of projects as well as a clearer idea of the need, but less and less funding capacity. The EFA are in a better position to negotiate a greater funding allocation (with the DfE and Treasury) and have the opportunity to drive efficiencies through framework procurements and standardised designs, but fundamentally don’t control provision – they are dependent on providers submitting a viable free school bid.

In response, the EFA are being more proactive, being ready to purchase sites for development in areas where there is a shortage of places. Local authorities have been working more closely with potential providers (particularly strong schools and effective academy trusts) to support free school bids and have been increasingly looking to use targeted basic need funding to support expansion in existing schools, including new development ‘off-site’ utilising the ‘annex’ principle best but most controversially demonstrated by the recent decision in the Weald of Kent Grammar School case.

New partnerships
What is interesting is that we are starting to see a growing enthusiasm for both developers and school providers to take control of new provision and expansion, recognising that there is an opportunity to create an effective local partnership to deliver projects which meets both the needs of a developer to build an effective community resource, as well as those of the provider who may lack the technical skills and capacity to manage significant build projects.

Whilst it is early days, the trend is being encouraged by both local authorities and the EFA, perhaps recognising the need locally and nationally to develop capacity to deliver new build works and that schools are best placed to make decisions about where to focus investment to secure the right educational outcomes. Certainly the more effective providers, e.g. the larger multi-academy trusts and those schools supported by experienced foundations and sponsors, are increasingly stepping up ready to take control of new provision.

Section 106 monies can be ring fenced and supplemented by both local authority funding and EFA grant to deliver new school buildings. Many local authorities are just as happy now to provide capital grant to schools and academies to deliver additional school places and the EFA is currently trialling local delivery of the Priority School Building Programme (which they had previously delivered centrally) with funding allocated to local authorities, dioceses and larger multi-academy trusts.

This will work best where there is a high degree of openness and transparency i.e. where there is trust and any formal procurement should prioritise this.

For developers and contractors, the fragmentation of commissioning may be off putting. Projects started by local authorities may need to be taken over by schools/academies. The recent White Paper Educational Excellence Everywhere (March 2016) stressed the intention to make all schools academies by 2020 and by 2022 at the latest. Although the message may have been softened since to appease Unions and Tory back benchers, there is no doubt about the government’s intention and the likelihood that there will be legislative changes at some point to achieve this (if only for the rump of schools left by then who have refused to engage so far). The impact on local authorities will be stark as their funding flexibility ebbs away, precipitated by the introduction of a national funding formula, designed to smooth out regional funding variations, in 2017.

When schools become academies, the legal responsibility for maintaining the school (both in physical terms and in relation to funding) passes to the academy trust with whom the Secretary of State has entered into ‘academy arrangements’ (pursuant to the Academies Act 2010). As well as the focus on a ‘school led system’, government policy is to encourage schools to collaborate under multi-academy trusts, i.e. academy trusts which operate a number of schools. The DfE has been reluctant to be too prescriptive about the optimum size of a multi-academy trust, but it is likely that over time we will see MATs grow from 3, 4, 5 schools, typically, to trusts operating at least a dozen and may be upwards of 20 – 25 schools, with there still being a place for academy chains of 50+ schools.

For any supplier of goods, works and services to schools its crucial to know who you are dealing with. Academy trusts are companies and must publish their annual accounts. Whilst they are funded by the EFA, the EFA do not provide a guarantee of liability or performance. Local authorities have no financial liability and these days no historic liability for legacy debts owed by schools. By the same token, local authorities have no ongoing responsibilities for schools and do not provide any kind of indemnity for the legacy estate. The general principle behind schools becoming academies is conversion ‘as is’, i.e. warts and all. Whilst this might not have been an issue for schools becoming academies on their own (as a single academy trust) this is becoming more of an issue for multi‑academy trusts and particularly for sponsored academies who may be reluctant to inherit either crumbling buildings or new buildings commissioned by a local authorities without a full set of warranties.

In our experience, a more risk averse approach is being adopted by the trustees of multi-academy trusts (who may have only a remote knowledge of the school) and as yet the ability of the EFA’s Risk Protection Arrangements (a typed of pooled self‑insurance) scheme to tackle any financial exposure is untested.

This is very aptly illustrated in relation to schools built under the Private Finance Initiative. Whilst the EFA require local authorities to continue to manage these contracts if a school converts to an academy, it is becoming increasingly obvious that some local authorities are struggling to do so effectively with the pressure of funding cuts and the decimation of local authority teams.

Some might argue (quite rightly in some cases) that local authorities were never up to the challenge of managing these contracts and there is a poor history of holding contractors to account both for defects in design and now the longer term maintenance of the school buildings. You can always tell a PFI school from the outside, it’s the one with all the windows open in winter and the MUGA lighting up the whole community.

The even bigger problem is that many of these schemes were unaffordable on day one and to protect school budgets, general needs funding has been plugging the gap. Few local authorities can continue to afford to do so but passing the cost onto school budgets (even pooled budgets formed from that element of the Dedicated Schools Grant which is not delegated to schools) is controversial and likely to be a short term solution as the national funding formula arrives.

One solution is for the EFA to take responsibility for all historic School PFI schemes and for them to manage these in the same way it does for the new PFI schemes delivered through PF2 under the Priority School Building Programme. So far PF2 has been successful and a number of PFI schools procured and being built, but only time will tell if these schemes are better managed (and better value for money). The EFA’s ability to handle disputes involving PFI schools at the moment raises some questions which must be addressed if both schools and contractors are to have any confidence in the future.

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